1973 (1) TMI 90 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the supply of food by a hotel proprietor to his employees constitutes a sale under section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957.

Issue-wise Detailed Analysis:

1. Nature of the Transaction:
The primary issue was whether the transaction of supplying food by a hotel proprietor to his employees constitutes a "sale" as defined under section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957. The court examined the definition of "sale" which includes "every transfer of the property in goods by one person to another in the course of trade or business for cash, or for deferred payment, or for any other valuable consideration."

2. Assessment and Exemption:
For the year 1964-65, the Deputy Commercial Tax Officer, Visakhapatnam, assessed the hotel on a net turnover of Rs. 55,003.31, allowing a deduction of Rs. 4,329.24 for the value of food supplied to employees. The Deputy Commissioner sought to revise this assessment, contending that the supply of food should be taxed. The assessee argued that Rs. 25 per month was deducted from wages as per G.O. Ms. No. 950 Home (Labour) dated 25th May, 1962, and thus, the supply did not constitute a sale.

3. Tribunal's Findings:
The Sales Tax Appellate Tribunal found a fundamental distinction between supplying food to customers and employees. The supply to employees was part of the wages under a contract of service, not a contract of sale. The flat rate of Rs. 25 was significantly lower than what customers would be charged, reinforcing that it was not a sale.

4. Arguments by the State:
The State argued that the Rs. 25 per month, although not the usual price, constituted valuable consideration, making the transaction a sale. The State's counsel contended that the transaction involved a transfer of property in goods for money consideration under an agreement of sale.

5. Legal Interpretation of "Sale":
The court emphasized that a "sale" requires mutual consent and a contract. Mere transfer of property without volition or mutual consent does not constitute a sale. The court referred to several precedents, including Poppatlal Shah v. State of Madras and State of Madras v. Gannon Dunkerley and Co., to underline that the essence of a sale is a consensual contract.

6. Statutory Obligation and Custom:
The court noted that under G.O. Ms. No. 950, the hotel was obligated to deduct Rs. 25 from wages for food, indicating no volition or free consent. The primary object was to comply with statutory obligations, not to engage in a sale. The transaction was in the interest of employees and beneficial to the hotel for better work performance.

7. Valuable Consideration and Price:
The court rejected the argument that payment in kind (food) constituted "valuable consideration" under section 2(n) of the Act. The term "valuable consideration" should be construed as monetary payment, not payment in kind.

8. Profit Motive and Business Definition:
The court addressed the State's reliance on the definition of "business" under the amended Act, which includes transactions without profit motive. However, since the amendment came into force on 1st April 1966, it was not applicable to the assessment year 1964-65.

9. Distinguishing Precedents:
The court distinguished the present case from others cited by the State, such as Dunkerley & Co. v. State of Madras and Deputy Commercial Tax Officer v. E.I.L. Co-operative Canteen Ltd., where the transactions involved legal entities and all elements of sale were present.

10. Domestic Transaction and Service Contract:
The court considered the supply of food as a domestic transaction incidental to the service contract, not a commercial sale. The supply was part of the wages and customary practice, not a separate sale transaction.

11. Relevant Case Law:
The court referred to several cases, including State of Himachal Pradesh v. Associated Hotels of India Ltd., where the supply of meals in hotels was considered incidental to the service, not a sale.

Conclusion:
The court concluded that the supply of food by the hotel to its employees did not constitute a "sale" under section 2(n) of the Act. The transaction was part of the service contract and statutory obligation, lacking the essential elements of a sale. The tax revision case was dismissed, with costs awarded to the amicus curiae.